Mutual funds: Bet on funds with a balanced advantage

Geopolitical tensions, sustained high inflation and rising interest rates have increased market volatility and reduced investor confidence. As determining when to invest in capital is an impossible task for retail investors, the strategic allocation of assets must be at the heart of their portfolio.

Investors who would like to take less risk based on their risk appetite or stage of life should consider hybrid funds as funds with a balanced advantage now. In these funds, fund managers work on the distribution between different asset classes based on their stock market views, interest rate and other relevant parameters. The distribution of equity is in the range of 30-70% depending on market conditions. These funds are good for investors who want to take limited risk and generate a total return between equity and debt.

More aggressive investors should prefer aggressive, equity-oriented hybrid funds that would invest 70-80% of their assets in equity. These funds may not necessarily reduce the risk, as they will have a higher distribution of equity most of the time. However, those investors who want to assume slightly less risk than full equity exposure must invest in these funds. These funds are ideal for those who are looking for a more aggressive alternative to pure debt funds and want to invest in equity for higher return potential, while limiting their losses in the event of markets falling.

Harshad Chetanwala, co-founder of MyWealthGrowth.com, says those investors who distribute their assets in line with their financial goals should consider gradually increasing their equity funds in the current market environment to maintain the distribution of their assets. “Because every time the stock market adjusts, it reduces the distribution of equity in the portfolio. The key is to stay focused on asset allocation and invest the available surplus in equity to maintain asset allocation, ”he said.

Balanced benefits

Balanced advantage funds invest in a combination of stocks, debt and arbitrage options, depending on market conditions. In fact, if the distribution of equity falls, these funds will be invested in arbitration. Investors who have not been able to decide on the distribution of their assets can invest in those funds, where the fund manager will make the distribution in shares and debt depending on market conditions. Fund managers of these funds reduce equity exposure when market ratings are high and increase equity exposure when ratings are low. So the investor can benefit from both rising and falling markets by investing in these funds.

In these funds, the fund manager has the freedom to invest in stocks or debt without any restriction on the minimum or maximum distribution, which makes balanced advantage funds a better choice in all hybrid funds for investors. Investors need to keep the fund in the long run – three to five years – to take advantage, because in the short term these funds can give a negative return. These funds are treated as equity funds for tax purposes and attract 10% tax on long-term capital gains for periods of more than one year on gains over Rs 1 lakh.

Aggressive hybrid funds

Aggressive hybrid funds are ideal for those investors who can tolerate a certain level of investment risk to achieve their long-term goals without worrying too much about market volatility.

Aggressive hybrid funds help the investor in the distribution of assets, because by diversifying assets between equity classes and debt assets, these schemes reduce the risk of market instability and generate higher returns in the long run. In times of market instability, fund managers will rebalance the distribution of their assets as different asset classes differ under different market conditions. Experts say regular rebalancing will make asset allocation work and can generate higher risk-adjusted returns.

BALANCE OF THE COEFFICIENTS

– Balanced advantage funds invest in a combination of equity, debt and arbitrage options

– These funds are treated as equity funds for tax purposes and attract 10% LTCG tax on profits over Rs 1 lakh per year

– Keep the fund for three to five years to take advantage, as in the short term these funds can give a negative return

– Aggressive hybrid funds are ideal for those who can tolerate a certain level of risk to achieve their long-term goals

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